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Kaiser Permanente Insurance

Kaiser Permanente evolved from industrial health care programs for construction, shipyard, and steel mill workers for the Kaiser industrial companies during the late 1930s and 1940s. It was opened to public enrollment in October 1945.

The organization that is now Kaiser Permanente began at the height of the Great Depression with a single inventive young surgeon and a 12-bed hospital in the middle of the Mojave Desert. When Sidney Garfield, MD, looked at the thousands of men involved in building the Los Angeles Aqueduct, he saw an opportunity. He borrowed money to build Contractors General Hospital; six miles from a tiny town called Desert Center, and began treating sick and injured workers. But financing was difficult, and Dr. Garfield was having trouble getting the insurance companies to pay his bills in a timely fashion. To compound matters, not all of the men had insurance. Dr. Garfield refused to turn away any sick or injured worker, so he often was left with no payment at all for his services. In no time, the hospital’s expenses were far exceeding its income.

Prepayment System is Born

Enter Harold Hatch, an engineer-turned-insurance agent. Hatch suggested that the insurance companies pay Dr. Garfield a fixed amount per day, per covered worker, up front. This would solve the hospital’s immediate money troubles and, at the same time, would enable Dr. Garfield to emphasize maintaining health and safety rather than merely treating illness and injury. Thus, “prepayment” was born. For the princely sum of five cents per day, workers were provided this new form of health coverage. For an additional five cents per day, workers could also receive coverage for non-job related medical problems. Thousands of workers enrolled, and Dr. Garfield’s hospital became a financial success.

As the aqueduct project wound down, Dr. Garfield prepared to leave his desert hospital and start a solo practice in Los Angeles. But he got a call from another industrialist. This time, the problem was providing health care to 6,500 workers and their families at the largest construction site in history—the Grand Coulee Dam.

Excited by the possibilities, Dr. Garfield put his solo practice plans on hold. He turned the existing run-down hospital into a state-of-the-art treatment facility and recruited a team of doctors to work in a “prepaid group practice.” The method again was a smashing success and a big hit with the workers and their families. But as the dam neared completion in 1941, it seemed once again that the grand experiment was reaching an end.

In the Shipyards

Once again, however, history intervened. America’s entry into World War II brought tens of thousands of workers—many of who were inexperienced and in poor health already—pouring into the Kaiser Shipyards in Richmond, Calif., to meet the nation’s demand for big Liberty Ships, aircraft carriers, and the like. Now, Henry J. Kaiser had the problem: How to provide health care for this teeming mass of 30,000? Kaiser was convinced that Dr. Garfield could solve his problem, but it took some special wrangling—the surgeon was already scheduled to enter active duty with his U.S. Army Reserve unit in just a few weeks.

But at Kaiser’s request, President Franklin D. Roosevelt released Dr. Garfield from his military obligation specifically so he could organize and run a prepaid group practice for the workers at the Richmond shipyards. And so, Dr. Garfield and his innovative health care delivery system came to the San Francisco Bay Area, and formed the association with Kaiser that would imbed itself in the organization and continue until the present day.

Kaiser Permanente Comes Into Its Own

When the war came to an end, the shipyard workforce fell from 90,000 to just 13,000 employees in only a few months. Only about a dozen of the 75 members of the medical group remained. But Dr. Garfield wanted to keep practicing his new form of health care delivery, and Kaiser wanted the plan to continue as well. Therefore, on October 1, 1945, the Permanente Health Plan officially opened to the public. In 10 years, enrollment surpassed 300,000 members in Northern California. In these early years, the success of the health plan was largely the result of support from unions. Two unions—the International Longshoremen’s and Warehousemen’s Union and the Retail Clerks Union—were the driving force behind bringing the health plan to Los Angeles.

In 1952, the name of the Health Plan and the Hospitals was changed from Permanente, which some felt had little meaning outside the organization, to Kaiser, which had high recognition nationally because of Kaiser Industries and Henry J. Kaiser himself. The medical group chose to keep the Permanente name, in part to clarify that they were not employees of Henry J. Kaiser.

Thus, the organization known in modern times as Kaiser Permanente was born. We are still a working partnership of two organizations: the not-for-profit Kaiser Foundation Health Plan and Hospitals, and the Permanente Medical Groups.